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Minimum Wage Increase Will Not Kill Jobs

It’s a classic argument offered by Libertarian economists; “an increase in the minimum wage will kill jobs.” The problem with the argument is that the facts show this isn’t the case.

While it may seem counter-intuitive, a study by the Center for Economic and Policy Research (CEPR) released in March 2011 found that minimum wages don’t hurt the employment prospects of low-wage workers. The report, “The Wage and Employment Impact of Minimum-Wage Laws in Three Cities,” evaluated the effects of city-specific minimum wage standards in San Francisco, Santa Fe, and Washington DC. The authors used data from a virtual census of establishments in these cities, their surrounding suburbs and nearby metropolitan areas and found these policies did not have significant negative effects on the employment of low-wage workers.

“The experience of the first three cities to implement city-wide minimum wages demonstrates that these laws can raise the earnings of low-wage workers with no negative impact on employment,” said John Schmitt, a senior economist at CEPR and an author of the study.

Of course these facts escaped the notice of Gary Galles who wrote for the Orange County Register Minimum-wage hike hurts even gainers on Friday. How a professor of economics at Pepperdine University could miss this is somewhat baffling to me, but heck—if the facts don’t fit the meme some people find it easy to simply ignore them. Professor Galles concluded that raising the minimum wage “harms not only those who lose their jobs, disproportionately the young and least-skilled, but also the supposed winners, whose higher initial incomes soon are more than offset by slower income growth over time.”

The authors of the CEPR study compared wages and employment before and after the city minimum wage with changes over the same period in wages and employment in comparable establishments in nearby areas that did not see an increase in the minimum wage.

The report found that wages rose significantly in San Francisco and Santa Fe in fast food, food services, retail and low-wage establishments, but employment was unaffected. The findings support the view that modest increases in the minimum wage have no discernible impact on the employment prospects of low-wage workers.

“This report confirms what we have found generally in our numerous participatory research studies on the industry, based on more than 5000 surveys of restaurant workers and 300 employer interviews nationwide. Increasing the minimum wage for America’s lowest-paid workers – restaurant workers – does not hurt our thriving industry; in fact, because restaurant workers consume so much in their own industry, we know that putting a few extra dollars in their pockets comes right back as stimulus to our industry and the economy as a whole,“ said Saru Jayaraman, Co-Director and Co-Founder of the Restaurant Opportunities Centers United.

The authors also find that the increase in the minimum wage implemented in 1993 in Washington, DC, was too small to raise wages in the same sectors. In Washington, most workers were already above the new minimum wage and few workers were in the range affected by the new minimum. At the same time, the implementation of the minimum wage did not have any negative effects on employment for low-wage workers.

However, the cases in San Francisco and Santa Fe suggest that small establishments do not respond to minimum wages differently than larger firms. David Coss, the Mayor of Santa Fe, also concurred with the report’s findings: “I am proud of Santa Fe’s living wage law. I am also very proud of the businesses in Santa Fe who pay a living wage. Our work on the living wage has made Santa Fe a national leader and has strengthened our economy, community and working families.”

President Obama was right when he said in his State of the Union address “Let’s declare that in the wealthiest nation on earth, no one who works full time should have to live in poverty.”